THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH

THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
BNP PARIBAS
ENTREPRENEUR REPORT / 2019




                             PART II

                    THE ENTREPRENEURIAL
                   JOURNEY AND ITS IMPACT
                     ON PRIVATE WEALTH
THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
CONTENTS


p.2	Editorial
                                   41
                                   SECTION 2 / THE SUCCESSION
                                   QUESTION
p.4	Research Methodology
     & Sampling                    p.42	Making Way for the Next Generation

p.5	Contributors                  p.46 In conversation with Martine Reynaers

p.6	Key Findings                  p.48	A Blended Approach to Leadership
                                         Preparation
                                   p.52	In conversation with
                                         Cindy Galardi Culpepper
                                   p.54	Protecting Financial Value



9
                                         and Personal Wealth
                                   p.58	A Legacy of Good Governance
                                   p.60 In conversation with Benoît Frin
SECTION 1 / FROM IDEATION
TO IPO – THE BUSINESS
LIFECYCLE
                                   p.62	In Conclusion
p.10	Spotlight on the Lifecycle
      of a Successful Firm
p.16	Stage One: Creation
p.22	Stage Two: Growth




                                   65
p.26	Stage Three: Development
p.34	Stage Four: Consolidation
p.36	Stage Five: Transfer

                                   COUNTRY SNAPSHOTS



                                   p.88	
                                        About Us
THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
EDITORIAL




In a world that is ever-changing,
 entrepreneurs seek to build their strategy
 with a partner they trust. At BNP Paribas
 Wealth Management, we are able to serve
 them through a holistic approach across
 Europe, Asia and the United States, whether
 by helping them grow their company or
 by managing their personal wealth.’
                                                                            Sofia Merlo         Vincent Lecomte




      WELCOME
 TO OUR 2019 GLOBAL ENTREPRENEUR REPORT.


        For the fifth consecutive year, we have strived to uncover the impact on the global
        economy of 2,763 business owners from 23 different markets. In the first of our two-
        part series released in fall 2018, we spotlighted entrepreneurial investments and
        trends. In this second part, we examine how entrepreneurs unlock growth, be it through
        a merger, an acquisition or organically.

        Equally important is when they step back from their business. Most have identified
        a successor and they are committed to providing them with guidance and training to
        succeed. Many will put in place a governance framework to clarify the future strategy of
        their firm.




                  BN P   PA RI BA S   E NTRE PRE N E U R   RE PORT   /   2019   /   PART   II

                                                     2
THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
This report demonstrates again that Elite Entrepreneurs have specific needs depending
on where their business lifecycle stands. When entrepreneurs face the decision to
transfer or sell their business, succession planning and family governance are top of
mind and they can rely on our experts to accompany them. Our ‘NextGen Experience’
in Paris, Hong Kong and in the Silicon Valley, prepares millennials to take leadership
positions in their family businesses or develop their own entrepreneurial ventures.

We accompany some of the world’s most demanding entrepreneurs. As a responsible
Private Bank serving the economy, our objective has always been to improve our own
understanding to better support entrepreneurs in their personal and professional
wealth creation strategies, bringing them solutions across the entire BNP Paribas
Group.

This is the purpose of our report.




                                               Sofia Merlo                     Vincent Lecomte
                                               Co-CEO BNP Paribas              Co-CEO BNP Paribas
                                               Wealth Management               Wealth Management




            BNP   PA RI BA S   E N T RE PRE N E U R   RE PORT   /   2019   /    PART   II

                                                3
THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
RESE ARCH METHODOLOGY & SAMPLING




T
      he research program was undertaken
                                                                     AGE
      by Scorpio Partnership (an Aon company)
      during Q3, 2018. The audience of participants
was high net worth and ultra-high net worth                                                         36 TO 54
investors that owned businesses.                                     35 AND
                                                                     UNDER
The research methodology involved an online                                                      52%
survey program with 2,763 participants spanning
23 countries. In addition, Scorpio Partnership                           37%
conducted in-depth interviews with entrepreneurs                                                                     55 AND OVER
and industry experts in the US, Europe and Asia.
                                                                                     2,763                     11%
                                                                                     TOTAL SAMPLE




ON AVERAGE                                                           GENDER

           USD16 BN
           TOTAL NET WORTH


           USD5.8 M
           NET WORTH
                                                                                 67% MALE
                                                                                                              33%
                                                                                                               FEMALE

           2.8
           COMPANIES STARTED




REGIONS

COUNTRIES COVERED:
Belgium, Brazil, China, France, Germany,
Gulf Cooperation Council (GCC), Hong Kong,                  14%
India, Indonesia, Italy, Luxembourg,
                                                                                                                    30%
                                                                                     51%
                                                            USA
Netherlands, Poland, Russia, Singapore,
Spain, Switzerland, Taiwan, Turkey,                                                                                  APAC
United Kingdom and United States                                                     EUROPE
                                                               3%
                                                              BRAZIL

                                                                                                             2%
                                                                                                             GCC


Throughout this report, we use the following definitions:
• High net worth (HNW) entrepreneur: Entrepreneur with investable assets valued between USD10 million and USD25 million.
• Ultra-high net worth (UHNW) entrepreneur: Entrepreneur with investable assets valued at USD25 million or more.




                            BN P   PA RI BA S   E NTRE PRE N E U R     RE PORT   /   2019   /   PART   II

                                                                 4
THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
CONTRIBUTORS




       BENOÎT FRIN                                                                           MARTINE REYNAERS
Estate Planning and                                                                          Managing Director
   Lending Director                                                                          @Reynaers Group
@BNP Paribas Fortis
    Private Banking




   CINDY GALARDI                                                                             TASHA VASHISHT
       CULPEPPER                                                                             Senior Manager
 CEO and Chairman                                                                            @Scorpio Partnership
   @Galardi Group                                                                            (an Aon company)




                  BNP   PA RI BA S   E N T RE PRE N E U R   RE PORT   /   2019   /   PART   II

                                                      5
THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
KEY FINDINGS




Almost half of global  Elite entrepreneurs
are in the early   stages of their journey
47% are in the ‘Creation’ or ‘Growth’ phases, where the
objective is to launch a product or service, or grow revenues
(Tech and Engineering are the top sectors respectively for
                                                                                56%
                                                                                have experienced M&A of a business
these stages). The remainder are aiming to improve profits                      More than half of entrepreneurs have been
or productivity (particularly in Professional Services,                         through a merger or acquisition with one of
Transport and Logistics) or planning an exit.                                   their firms in the past. Those in Turkey and
                                                                                Brazil are most likely to have had a
                                                                                business acquired in the last five years,
                                                                                while Poland, India and China are hotspots
                    One in four entrepreneurs is a                              for recent mergers.

                    ‘DISRUPTOR’
                    While innovation is the five-year ambition
                    for many entrepreneurs, 24% hope to have
                    developed a new product that ‘disrupts
                    their chosen sector’. The typical ‘Disruptor’
                    is 39 years old, lives in Belgium, Taiwan or
                    the Netherlands, and works in Tech,
                    Engineering or Manufacturing.

                                                                                      business
                                                                                In hindsight,
                                                                                strategy support
44%
have used credit
              solutions to develop
                                                                                is considered critical for successful M&A
                                                                                ‘Growth of market share’, ‘sector
                                                                                diversification’ and ‘accessing new markets’
                                                                                are the most common triggers for M& A
their businesses                                                                activity. Half of those who have been
The demand is highest in Asia, where 55% have borrowed to                       through this experience say establishing
invest in their own businesses, rising to six in every ten                      their business strategy, and having the
entrepreneurs in China, India and Indonesia. Those in the                       right team in place, were vitally important.
‘Development’ stage are most likely to rely on lending for
business financing purposes.




                         BN P   PA RI BA S   E NTRE PRE N E U R   RE PORT   /    2019   /   PART   II

                                                            6
THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
More than one in three

BABY BOOMER                                                                       More than

ENTREPRENEURS
is preparing to exit
7% of global entrepreneurs are anticipating an
                                                                                  half
                                                                                  feel the next
                                                                                            generation
imminent sale or business exit, rising to 34% of
those over the age of 55. ‘Implementing a plan                                    of business leaders need
to preserve wealth’ and ‘finding the right time                                   more guidance
to sell’ are the chief concerns before an exit                                    53% of Elite entrepreneurs believe their
(each is a priority for 41%).                                                     successors are not ready to take over their
                                                                                  responsibilities; a further 13% have not
                                                                                  even identified anyone suitable. However,
               Most entrepreneurs intend for their business                       47% of UHNWIs are fully confident in the
               to stay in                                                         future leaders of their firms. Overall, 92%

               the family
                                                                                  of entrepreneurs would value succession
                                                                                  planning from their wealth managers
                                                                                  to prepare the next generation.
               51% say that their plan is for ownership of their
               business to eventually pass to a family member:
               their top three reasons are to safeguard the firm’s
               financial value, trust in the next generation to
               develop the business and wanting to preserve core                  FAMILY
               values. Those in Poland, Italy, Russia, Brazil and
               Indonesia are most convinced of this approach.
                                                                                  GOVERNANCE
                                                                                  will help different generations
                                                                                  reach a consensus on strategy
                                                                                  Almost a third (29%) of entrepreneurs will

However,  family transfer                                                         implement a family governance code before
                                                                                  they relinquish their responsibilities.
becomes less appealing when
                                                                                  A code fulfils two important objectives:
entrepreneurs approach exit
                                                                                  smooth integration of family members into
As many as 62% of entrepreneurs in the                                            the firm and definition of the long-term
‘Creation’ stage say they will pass on                                            business plan.
company interests to a family member.
However, this falls to just 37% as they
approach exit and other options, such as
a management buy-out or sale to a new
owner, also become attractive.




                          BNP   PA RI BA S   E N T RE PRE N E U R   RE PORT   /    2019   /   PART   II

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THE ENTREPRENEURIAL JOURNEY AND ITS IMPACT ON PRIVATE WEALTH
SECTION 1




 F R O M I D E AT I O N TO I P O

THE BUSINESS
 LIFECYCLE
FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




                                                      SPOTLIGHT ON


                     THE LIFECYCLE
                        OF A SUCCESSFUL FIRM

                                                    CREATION
                                                    Criteria of Lifecycle Stage:
                                                    Entrepreneurs with a main business
                                                    objective in 2018 to launch a new
                                                    product, concept or service line




                                                                   1
                                                               STAGE




TRANSFER                                                                                                           GROWTH
Criteria of Lifecycle Stage:                                                                                       Criteria of Lifecycle Stage:
Entrepreneurs with a main

                                             5                                                     2               Entrepreneurs with a main
                                                                                               STAGE
                                         STAGE




business objective in 2018 to                                                                                      business objective in 2018 to
exit from their primary business                                                                                   grow sales or revenues relative
                                                                                                                   to the previous year




                                                        4                          3
                                                    STAGE




                                                                               STAGE




                   CONSOLIDATION                                                       DEVELOPMENT
                   Criteria of Lifecycle Stage:                                        Criteria of Lifecycle Stage:
                   Entrepreneurs with a main business                                  Entrepreneurs with a main business
                   objective in 2018 to consolidate their                              objective in 2018 to increase profitability,
                   business and prepare for exit                                       efficiency or productivity relative to the
                                                                                       previous year




                               BN P    PA RI BA S   E NTRE PRE N E U R      RE PORT        /     2019   /   PART   II

                                                                       10
1
    STAGE
                      CREATION

    PROFILING                                              DEEP-DIVE

            Population
                                                       	21% of entrepreneurs aged 35 and under are at the ‘Creation’ stage
            460 Elite
            Entrepreneurs                                of the business lifecycle, compared to only 6% aged 55 and over.
            (17% of total sample)
                                                       	26% of UHNW entrepreneurs with net worth equal to or greater
                                                         than USD25 million indicate that they are at the ‘Creation’ stage of
            Average age
            37 years old                                 the business lifecycle.

            Average Company
            Revenue in 2017
            USD6.4 million
                                                           TOP SECTOR HOTSPOTS                                  TOP 5 MARKET HOTSPOTS

    SUCCESSION PLAN                                    1     IT and digital            25%                  1     Russia                  30%
                                                             technology
1      Ownership will pass          62%
                                                                                                            2     Indonesia               29%
       to a family member                              2     Retail and culture        17%

2      Ownership will pass          29%
                                                                                                            3     China                   25%
       to the management
       team
                                                       3     Transport and logistics 17%


3      Ownership will pass          9%                                                                      4     GCC                     23%

       to a new owner                                  4     Manufacturing and         15%
                                                             engineering
                                                                                                            5     Poland                  23%
                                                       5     Financial services        13%



    FUTURE BUSINESS INVESTMENTS
                                                       6     Professional services     13%
                                                             (e.g. medical, legal)

1      Product design               42%


2      Product                      38%                    SUCCESSION ADVICE
       manufacturing
                                                       1     Advice on how to          41%                  5     Wealth management       31%
3      Marketing                    34%
                                                             prepare future leaders                               after the transfer or
                                                             for senior leadership                                sale of my business
4      Sales and                    32%                      responsibilities
                                                                                                            6     Facilitation during     29%
       distribution
                                                       2     Advice on the correct     39%                        meetings to smooth
5      Customer experience          30%                      valuation of the
                                                             business
                                                                                                                  the transfer
       (e.g. website)
                                                                                                            7     Putting in place        25%
6      Mobile                       26%                3     Support finding people 38%                           a family governance
       communications                                        with the right skills and                            code for the next
                                                             experience to manage                                 generation of leaders
7      Finance (e.g.                23%
                                                             the business
       accounting, payments)
                                                       4     Advice on structuring    32%
                                                             the transfer to optimise
                                                             tax efficiency
Source: 2019 BNP Paribas Global Entrepreneur Report



                                 BNP      PA RI BA S   E N T RE PRE N E U R       RE PORT    /   2019   /   PART        II

                                                                          11
FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




        2
    STAGE
                      GROWTH

    PROFILING                                              DEEP-DIVE

            Population
                                                       	
                                                        Only 34% of entrepreneurs in the ‘Growth’ stage believe
            844 Elite
            Entrepreneurs                               that the next generation of business leaders are fully prepared
            (31% of total sample)                       for future management, compared with 50% of ‘Creation’ stage
                                                        business owners.
            Average age
            39 years old                               	
                                                        More than one in two Growth stage entrepreneurs believe that a
                                                        family governance code could help define the future role of family
            Average Company                             members and help integrate them into the business, while also
            Revenue in 2017                             helping to set up a long-term strategic business plan for the future.
            USD6.4 million
                                                           TOP SECTOR HOTSPOTS                                  TOP 5 MARKET HOTSPOTS

    SUCCESSION PLAN                                    1     Manufacturing             33%                  1     Luxembourg              59%
                                                             and engineering
1      Ownership will pass          50%
                                                                                                            2     Belgium                 48%
       to a family member                              2     Transport                 31%
                                                             and logistics
2      Ownership will pass          36%
                                                                                                            3     Poland                  40%
       to the management
       team
                                                       3     Retail and culture        30%


3      Ownership will pass          14%                                                                     4     Spain                   38%

       to a new owner                                  4     Professional services     30%
                                                             (e.g. medical, legal)
                                                                                                            5     Indonesia               37%
                                                       5     IT and digital            30%
                                                             technology

    FUTURE BUSINESS INVESTMENTS
                                                       6     Financial services        26%


1      Sales and distribution       40%


2      Marketing                    39%                    SUCCESSION ADVICE

                                                       1     Advice on the correct     44%                  5     Wealth management       32%
3      Customer experience          34%
                                                             valuation of the                                     after the transfer or
       (e.g. website)                                        business                                             sale of my business
4      Product design               31%
                                                       2     Advice on how to          37%                  6     Putting in place a      30%
                                                             prepare future leaders                               family governance
5      Product manufacturing 28%                             for senior leadership
                                                             responsibilities
                                                                                                                  code for the next
                                                                                                                  generation of leaders

6      Finance                      27%                3     Support finding people    37%                  7     Facilitation during     30%
       (e.g. accounting,                                     with the right skills                                meetings to smooth
       payments)                                             and experience to                                    the transfer
                                                             manage the business
7      Mobile communications 22%
                                                       4     Advice on structuring    34%
                                                             the transfer to optimise
                                                             tax efficiency
Source: 2019 BNP Paribas Global Entrepreneur Report



                                 BN P     PA RI BA S   E NTRE PRE N E U R         RE PORT    /   2019   /   PART      II

                                                                          12
3
    STAGE
                      DEVELOPMENT

    PROFILING                                              DEEP-DIVE

            Population
                                                       	
                                                        In terms of future business goals, the majority of ‘Development’
            1,262 Elite
            Entrepreneurs                               stage entrepreneurs (16%) want to contribute to innovation and
            (46% of total sample)                       development in their chosen industry.

                                                       	26% of ‘Development’ stage entrepreneurs believe that automation
            Average age
            40 years old                                 will help transform their business in the next five years, compared
                                                         to only 19% of their peers in the ‘Growth’ stage.
            Average Company
            Revenue in 2017
            USD7.5 million
                                                           TOP SECTOR HOTSPOTS                                  TOP 5 MARKET HOTSPOTS

    SUCCESSION PLAN                                    1     Financial services        49%                  1     Netherlands             64%


1      Ownership will pass          48%
                                                                                                            2     Switzerland             63%
       to a family member                              2     Transport and logistics 49%

2      Ownership will pass          38%
                                                                                                            3     Singapore               58%
       to the management
       team
                                                       3     Professional services     49%
                                                             (e.g. medical, legal)
3      Ownership will pass          14%                                                                     4     Italy                   55%

       to a new owner                                  4     Manufacturing and         47%
                                                             engineering
                                                                                                            5     Turkey                  54%
                                                       5     Retail and culture        44%



    FUTURE BUSINESS INVESTMENTS
                                                       6     IT and digital            42%
                                                             technology

1      Marketing                    40%


2      Customer experience          38%                    SUCCESSION ADVICE
       (e.g. website)
                                                       1     Advice on how to          44%                  5     Wealth management       34%
3      Sales and distribution       35%
                                                             prepare future leaders                               after the transfer or
                                                             for senior leadership                                sale of my business
4      Product design               35%                      responsibilities
                                                                                                            6     Putting in place        31%
                                                       2     Advice on the correct     40%                        a family governance
5      Product manufacturing 30%                             valuation of the
                                                             business
                                                                                                                  code for the next
                                                                                                                  generation of leaders

6      Finance (e.g.                29%                3     Support finding people 40%                     7     Facilitation during     31%
       accounting, payments)                                 with the right skills and                            meetings to smooth
                                                             experience to manage                                 the transfer
7      Mobile communications 26%
                                                             the business

                                                       4     Advice on structuring    38%
                                                             the transfer to optimise
                                                             tax efficiency
Source: 2019 BNP Paribas Global Entrepreneur Report



                                 BNP      PA RI BA S   E N T RE PRE N E U R       RE PORT    /   2019   /   PART          II

                                                                          13
FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




        4
    STAGE
                      CONSOLIDATION

    PROFILING                                              DEEP-DIVE

            Population
                                                       	12% of Elite Entrepreneurs aged 55 and over are in
            107 Elite
            Entrepreneurs                                the ‘Consolidation’ stage of the business lifecycle, compared to only
            (4% of total sample)                         3% of business owners aged 35 or under.

                                                       	
                                                        And in terms of future succession, only 37% of entrepreneurs
            Average age
            47 years old                                preparing for business exit this year intend to transfer ownership to
                                                        a family member, compared with 62% of ‘Creation’ stage business
            Average Company                             owners.
            Revenue in 2017
            USD5.8 million
                                                           PLANNING FOR BUSINESS EXIT                           TOP 5 MARKET HOTSPOTS

    SUCCESSION PLAN                                    1     Identifying the right    41%                   1     Brazil                    7%
                                                             time to sell my business
1      Ownership will pass          37%
                                                                                                            2     Spain                     7%
       to a family member                              2     Putting a plan in place   41%
                                                             to protect my wealth
2      Ownership will pass          34%
                                                                                                            3     United States             7%
       to the management
       team
                                                       3     Putting a plan in place   39%
                                                             to safeguard my
3      Ownership will pass          29%                      family’s future                                4     Taiwan                    6%

       to a new owner
                                                       4     Forming a precise         31%
                                                             understanding of the                           5     Germany                   6%
                                                             value of my company

                                                       5     Refinancing my          20%
                                                             business to improve its
    FUTURE BUSINESS INVESTMENTS                              financial performance

1      Marketing                    44%                6     Restructuring my          19%
                                                             business to improve
                                                             its competitiveness
2      Sales and distribution       33%

                                                           SUCCESSION ADVICE
3      Finance (e.g.                26%
       accounting, payments)                           1     Advice on how to          37%                  5     Support finding people    27%
                                                             prepare future leaders                               with the right skills
4      Customer experience          24%                      for senior leadership                                and experience to
       (e.g. website)                                        responsibilities                                     manage the business

5      Product manufacturing 22%                       2     Advice on the correct     37%                  6     Advice on structuring     26%
                                                             valuation of the                                     the transfer to
                                                             business                                             optimise tax efficiency
6      Product design               18%
                                                       3     Wealth management         31%                  7     Putting in place a        21%
                                                             after the transfer or                                family governance
                                                             sale of my business                                  code for the next
7      Mobile communications 9%
                                                                                                                  generation of leaders
                                                       4     Facilitation during       28%
                                                             meetings to smooth
                                                             the transfer
Source: 2019 BNP Paribas Global Entrepreneur Report



                                 BN P     PA RI BA S   E NTRE PRE N E U R      RE PORT       /   2019   /   PART      II

                                                                         14
5
    STAGE
                      TRANSFER

    PROFILING                                              DEEP-DIVE

            Population
                                                       	72% of entrepreneurs at the ‘Transfer’ stage of the business lifecycle
            90 Elite
            Entrepreneurs                                are aged 55 and over.
            (3% of total sample)
                                                       	
                                                        Only 37% of ‘Transfer’ stage entrepreneurs would transfer
                                                        their primary business to a family member at the point of succession,
            Average age
            61 years old                                compared to 62% of ‘Creation’ stage business owners.

            Average Company                            	
                                                        And in terms of succession advice, the majority of business owners
            Revenue in 2017                             (44%) planning to exit their business this year require support
            USD16.5 million                             sourcing the right talent with the skills needed to manage the
                                                        business in the future.

    SUCCESSION PLAN
                                                           AGE PROFILE                                         TOP 5 MARKET HOTSPOTS
1      Ownership will pass          37%
       to a family member                              1     55 and over              72%                  1     United States           13%

2      Ownership will pass          22%
       to the management                               2     36 to 54                 26%                  2     United Kingdom          6%
       team

3      Ownership will pass          41%                3     35 and under             2%                   3     Switzerland             4%
       to a new owner

                                                                                                           4     Netherlands             3%


                                                                                                           5     Germany                 3%




                                                           SUCCESSION ADVICE

                                                       1     Support finding people 44%                    5     Wealth management       15%
                                                             with the right skills and                           after the transfer or
                                                             experience to manage                                sale of my business
                                                             the business
                                                                                                           6     Putting in place        11%
                                                       2     Advice on the            33%                        a family governance
                                                             correct valuation                                   code for the next
                                                             of the business                                     generation of leaders

                                                       3     Advice on structuring    22%                  7     Facilitation during     7%
                                                             the transfer to optimise                            meetings to smooth
                                                             tax efficiency                                      the transfer

                                                       4     Advice on how to         15%
                                                             prepare future leaders
                                                             for senior leadership
                                                             responsibilities


Source: 2019 BNP Paribas Global Entrepreneur Report



                                 BNP      PA RI BA S   E N T RE PRE N E U R      RE PORT    /   2019   /   PART      II

                                                                           15
FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




      1
  STAGE




CREATION
How businesses begin
During their time at the helm of their businesses, entrepreneurs’ goals go through a
profound transformation.
Initially, many decide to start their companies because they have a pioneering
concept they want to commercialize and go it alone or join the family firm to enact
their plans. As their ideas take off and their businesses mature, they start to think
less about sales and more about sustainable growth in the form of profits. At the
point when their companies are standing on a secure foundation, they may be enticed
to sell, transfer ownership or even seek a public listing, before moving on to new
endeavors.
                                                                                         Almost

                                                                    half
Almost half of the entrepreneurs in our
research audience are running businesses
still in their foundation years [Figure 1].
17% are in the ‘Creation’ phase where their                of the entrepreneurs in
commercial objective for 2018 is simply to              our research audience are
launch their product or service. Just under a              running businesses still
third (30%) are in the ‘Growth’ stage during             in their foundation years.
which increasing sales is critical.
Just under half (46%) are leading more
mature businesses in ‘Development’, where the priority has shifted from revenues
to improving profits and productivity. The remainder are either preparing for (or in
the process of) exit.




                      BN P    PA RI BA S   E NTRE PRE N E U R   RE PORT   /   2019   /   PART   II

                                                         16
FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




        When thinking about your primary company, which of the following statements
        best sums up your main business objective for 2018?


                                      3%
                                TRANSFER
                      Exit (e.g. through a sale, public
                     listing or transfer of ownership                              17%
                      to the next generation) / Other                            CREATION
                                                                                    Launch of a new
           4%                                                                     product, concept or
                                                                                      service line
CONSOLIDATION
Consolidate and prepare for exit
      (e.g. prepare the business
             for sale or transfer)




                                                                                                                       30%
                                                                                                                     GROWTH
                                                                                                                 Growth of revenues /
                                                                                                                 sales relative to last
                                                                                                                         year
                               46%
                           DEVELOPMENT
                      Increased profitability relative to last
                          year / Improved efficiency or
                                   productivity




    [ F I G U R E 1 ] STAGES OF THE LIFECYCLE
    N = 2,763 / Source: 2019 BNP Paribas Global Entrepreneur Report




                                    BN P    PA RI BA S     E NTRE PRE N E U R   RE PORT   /   2019   /   PART   II

                                                                         18
Ultra-high net worth (UHNW) business owners are particularly drawn to the
                                excitement of the initial stages of entrepreneurship. Almost 60% are running
                                companies in ‘Creation’ or ‘Growth’ where their main objective is to establish a
                                viable business model for their current venture.
                                Known for its rapid project lifecycles and for inventing agile working practices, it is
                                no surprise that the Technology sector has the highest concentration of dynamic
                                ‘Creation’ businesses that aim to get new products to market quickly [Figure 2].
                                In contrast, half of entrepreneurs running financial services companies (including
                                accountancy and payments) are now able to focus mostly on gaining ground on profit
                                and efficiency.




    In which of the following sectors does your primary business operate?


                                           Creation           Growth            Development           Consolidation   Transfer

FINANCIAL                                13%                 26%               49%                    8%              4%
SERVICES
(N = 234)


IT AND DIGITAL                           25%                 30%               42%                    2%              1%
TECHNOLOGY
(N = 520)


MANUFACTURING                            15%                 33%               47%                    3%              2%
AND ENGINEERING
(N = 833)


PROFESSIONAL                             13%                 30%               48%                    5%              4%
SERVICES*
(N = 367)


RETAIL                                   17%                 30%               44%                    4%              5%
AND CULTURE
(N = 402)


TRANSPORT                                17%                 31%               49%                    3%              0%
AND LOGISTICS
(N = 228)


[ F I G U R E 2 ] MAPPING ENTREPRENEURIAL SECTORS AGAINST THE LIFECYCLE
Source: 2019 BNP Paribas Global Entrepreneur Report

* e.g. medical, legal


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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




Disruption predictor
The entrepreneurial obsession with spear-heading innovation through new products
and services is ingrained in their DNA, visible across the world and in all generations.
Yet there are some who approach the question of innovation differently; who want to
disrupt rather than contribute to incremental developments.
Just under a quarter (24%) of our research audience can be categorized as
‘Disruptors’ – individuals whose business goal is within five years to permanently
change the status quo with a new product or concept. Despite the attention usually
given to Millennials, Disruptors are actually slightly older, at 39 on average, and have
correspondingly more business experience under their belts.
They are driven by their unique mind-set rather than by their environment, and so
can be found across all regions and running businesses in diverse sectors. In Belgium,
as many as 40% say that disruption is their business goal, with entrepreneurs in
Taiwan (38%) and the Netherlands (36%) expressing similar views [Figure 3].




     In five years’ time, what would you like to have achieved through your primary business?


Rank          Location of primary business

1             BELGIUM                                 (N = 81)           40%

2             TAIWAN                                  (N = 77)           38%

3             NETHERLANDS                             (N = 85)           36%

4             SWITZERLAND                             (N = 76)           34%

5             BRAZIL                                  (N = 93)           33%

6             INDIA                                   (N = 106)          30%

7             HONG KONG                               (N = 154)          30%

8             RUSSIA                                  (N = 50)           28%

9             INDONESIA                               (N = 79)           28%

10            SPAIN                                   (N = 109)          28%


[ F I G U R E 3 ] DISRUPTION HOTSPOT MAP
N = 2,692 [ANSWERED: ‘Developed a product that disrupts my chosen sector’]
Sectors with fewer than 50 responses have been removed.
Source: 2019 BNP Paribas Global Entrepreneur Report



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                                                                             20
New industries are being transformed each year by digital developments and a
                                growing consumer appetite to participate in the sharing economy. Disruptors envision
                                the same happening one day in their own sectors [Figure 4]. Entrepreneurs running
                                businesses in Online, Mobile and Digital, Engineering and Manufacturing are most
                                likely to believe that they will one day pioneer that change, but for now all bets are
                                off as to who will get there first.




     In five years’ time, what would you like to have achieved through your primary business?


Rank                            Sector of primary business

1                               ONLINE, MOBILE & DIGITAL*                                         (N = 143)        34%


2                               ENGINEERING                                                       (N = 147)        31%


3                               MANUFACTURING                                                     (N = 301)        30%


4                               ENERGY, OIL & GAS                                                 (N = 65)         29%


5                               TRANSPORT, LOGISTICS & STORAGE                                    (N = 107)        28%


6                               INFORMATION TECHNOLOGY                                            (N = 373)        27%


7                               RETAIL                                                            (N = 301)        27%


8                               CONSTRUCTION & BUILDING SERVICES                                  (N = 197)        25%


9                               MEDICAL & DENTAL                                                  (N = 73)         25%


10                              EDUCATION                                                         (N = 92)         23%


[ F I G U R E 4 ] SECTORS WHERE DISRUPTORS RUN BUSINESSES
* software development

Sectors with fewer than 50 responses have been removed.
N = 2,692 [ANSWERED: ‘Developed a product that disrupts my chosen sector’]
Source: 2019 BNP Paribas Global Entrepreneur Report




                                BNP     PA RI BA S     E N T RE PRE N E U R       RE PORT   /   2019   /   PART   II

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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




      2
  STAGE




GROWTH

Reaching a crossroads: merger
or acquisition?
No entrepreneurial journey is the same as another, nor are the growth stories
of any two firms. During the second stage of the lifecycle, entrepreneurs – who
have worked hard to create businesses with distinct identities and in many cases
carefully preserved multi-generational family heritage – may end up at a crossroads.
For commercial reasons, they will face a decision to merge with another firm or be
acquired.
The implications for business success could be transformational and crystallize
growth ambitions; yet the impact on culture and brand are uncertain and therefore
not without risks.


                                           Faced with that choice,
                               most entrepreneurs are hard-wired
                                      to take any opportunity that
                                   could catapult their businesses
                                                   to new heights.




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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




56% of our respondents have already been through the M&A process with one of their
firms. Memories are fresh as these experiences have mostly taken place within the
last five years.
Those who agreed to an acquisition were usually motivated by the chance to grow
market share or access new markets, while those who consented to a merger had
similar aspirations and sought to diversify [Figure 5].
Their insights illuminate important considerations for their peers who are yet to go
down one of these paths. Naturally, professional guidance was vital to ensure the
transaction could be financed and completed. However, upon reflection, their most
valued source of advice did not relate to execution of the deal.




                                                                         Over


                                                                         50%
                                                                         of entrepreneurs who have
                                                                         had an M&A experience say
                                                                         that professional support
                                                                         for devising their business
                                                                         strategy, and having the
                                                                         right team in place, were
                                                                         both vital.




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                                                        24
Have any of the businesses you’ve owned in the past, or businesses you currently own, been
    through a merger or acquisition?

                                                    Grow                 Access              Diversify            Reduce               Remove
                                                    market               new                 my                   the cost             the threat of
                                                    share                markets             business             base                 a competitor

Yes - one of my businesses                          29%                  26%                 26%                  11%                  8%
was acquired in the past
five years (26%)
APAC                                                33%                  19%                 23%                  15%                  10%
EUROPE                                              29%                  28%                 24%                  11%                  8%
GCC                                                 33%                  39%                 11%                  17%                  0%
USA                                                 25%                  29%                 31%                  6%                   9%


Yes - one of my businesses                          31%                  22%                 27%                  11%                  9%
merged with another business
in the past five years (24%)
APAC                                                33%                  18%                 28%                  12%                  9%
EUROPE                                              27%                  26%                 26%                  12%                  9%
GCC                                                 31%                  26%                 11%                  21%                  11%
USA                                                 36%                  22%                 22%                  4%                   16%


Yes - one of my businesses                          29%                  24%                 29%                  10%                  8%
was acquired more than
five years ago (16%)


Yes - one of my businesses                          30%                  23%                 27%                  11%                  9%
merged with another business
more than five years ago (9%)



[ F I G U R E 5 ] TRIGGERS FOR M&A ACTIVITY
Not all responses shown. The chart above only shows responses from those who answered that their businesses had been acquired or merged.
N = 1,535 / Source: 2019 BNP Paribas Global Entrepreneur Report




                               BNP     PA RI BA S      E N T RE PRE N E U R       RE PORT       /   2019     /   PART     II

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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




      3
  STAGE




DEVELOPMENT
The road to 2023
The question ‘Where do you see yourself in five years’ time?’ is frequently posed
and difficult to answer. Succinct and simple, it forces individuals to hone in on their
hoped-for achievements and commit to a definition for future career success.
Imagine how much more difficult it is for people who are already successfully running
their own businesses to give their response. Entrepreneurs play multiple roles
every day: they are leaders of their workforce, problem-solvers for their clients and
visionaries in their industries. They are responsible for their employees and families,
and accountable to their shareholders.
Ask them to choose, however, and they come to a clear conclusion. In five years’ time,
entrepreneurs’ primary business objective is to have contributed to innovation and
development of their chosen sector [Figure 6]. Just over a third (36%) highlight this
as a critical success metric. With one eye looking ahead, another third intend to have
built a network that will support new commercial ventures.




                                  In five years’ time, entrepreneurs’
                                    primary business objective is to
                                have contributed to innovation and
                                development of their chosen sector.




                      BN P    PA RI BA S   E NTRE PRE N E U R   RE PORT   /   2019   /   PART   II

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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




    In five years’ time, what would you like to have achieved through your primary business?




    BUSINESS GOALS                                                         OVERALL (N = 2,692)                  35 and under (N = 1,033)
                                                                           36 to 54 (N = 1,413)                 55 and over (N = 246)


                                                                    0%                  10%               20%                    30%

Contributed to innovation and development                                                                                          36%
in my chosen sector

Contributed to the economic growth                                                                                    30%
of the domestic market

Recognition of my firm as an industry                                                                           27%
leader (e.g. through awards)

Overtake the current market leaders                                                                      24%
in my chosen sector

Recognition of my firm as a thought leader                                                               24%


Developed a product that disrupts my chosen                                                              24%
sector




    CAREER GOALS                                                           OVERALL (N = 2,692)                  35 and under (N = 1,033)
                                                                           36 to 54 (N = 1,413)                 55 and over (N = 246)


                                                                    0%                  10%               20%                    30%

                                                                                                                                 32%
Built a professional network that
can support my next venture
                                                                                                                      27%
Enabled the careers of talented individuals

                                                                                                                           28%
Enabled the careers of the next generation
of my family
                                                                                                                     26%
Enough money to step back
or even exit my business
                                                                                                               23%
Personal recognition for myself
as an industry leader


[ F I G U R E 6 ] ENTREPRENEURS’ FIVE-YEAR VISION FOR THEIR BUSINESSES
Source: 2019 BNP Paribas Global Entrepreneur Report




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                                                                    28
Each entrepreneur has their unique lens on what constitutes a worthwhile
             achievement. Some focus on contributing to growth of the local economy, which is
             important to more than 40% of those based in Indonesia, the Netherlands and Brazil.
             Others are striving to gain personal recognition as award-winners and thought
             leaders: this is the prism through which success is viewed in the GCC. The
             entrepreneurial ambition in India, Germany and Switzerland is for the next
             generation of their families to have meaningful careers.
             Millennials are the first ‘digitally native’ generation, so it is no surprise that they
             measure themselves primarily on their contribution to innovation in their sector; but
             they are also motivated by the career potential offered by entrepreneurship. Although
             they are young, many are anticipating that the network they build will springboard
             their next business.
             Meanwhile, the oldest generation of entrepreneurs – those aged 55 and over – are
             mostly interested in attaining financial security. They are in the final stretch of their
             careers and envision being able to step back from their responsibilities to enjoy their
             wealth and free time. Like their younger counterparts, many hope to make their mark
             on their sector but even more want simply to have enough money to retire.
             Their attitudes contrast sharply with those who, arguably, have it all – those worth
             USD25 million and over. Stepping back barely registers with ultra-high net worth
             entrepreneurs. Instead, their ambitions are chiefly to develop their sectors and
             generate growth – and support the professional development of the talented people
             who work for them.




Stepping back barely
registers with ultra-high
net worth entrepreneurs.




             BNP   PA RI BA S   E N T RE PRE N E U R   RE PORT   /   2019   /   PART   II

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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




The investments into their businesses
The technology revolution has opened up possibilities for entrepreneurship that
would have been inconceivable just two decades ago. Most entrepreneurs are
committed to continuing that advancement: in Part I of the 2019 BNP Paribas Global
Entrepreneur Report, we uncovered that 55% of business owners have technology
investments and see it as their number one growth sector for the future. For them,
digital is ubiquitous and underpins all their commercial activities.
They also know that they will need to invest in their own businesses if they are
to be perfectly positioned to take advantage of coming changes. With agile new
competitors arriving on the scene, the primary focus for entrepreneurs is ensuring
brand and product differentiation [Figure 7].
More than a third of entrepreneurs say most of the
investments they have planned over the next two years
                                                                         For entrepreneurs in the
relate to marketing, sales and distribution.                         ‘Development’ phase, where
In Asia, product design is the priority with 44% focused on
                                                                        improving profit margins
this – the highest of any region and particularly evident             and productivity is critical,
in China, Taiwan and Hong Kong. Over the next two years,                  automation is the most
those in Singapore will prioritize sales and distribution
                                                                            important advantage.
while entrepreneurs in the GCC are most committed to
future-proofing the product manufacturing process.
The immediate investment focus in Europe (particularly for the Netherlands, Belgium,
Luxembourg, France and Switzerland), and the US, is building out marketing. When
it comes to attaining their goals, those in the Netherlands, Poland, Spain and Turkey
will introduce more automation to their processes.
Few will take the risk of being complacent in this increasingly competitive
environment, so even entrepreneurs running businesses in the most technologically-
advanced industries are investing now to prepare for the future.
For example, entrepreneurs from the IT sector are bringing new advances to their
customer experience; engineering firms are considering whether their product
lifecycle could benefit from more efficient design and manufacturing; and those
working in finance are actively improving payments and accounting processes.




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                                                         30
Entrepreneurs at the earliest stages of the business lifecycle are most optimistic
                                about the transformations digital will bring. Asked to project the impact on their
                                sectors, those at the ‘Creation’ stage point enthusiastically to the chance to interact
                                more frequently through virtual means with potential clients as they launch new
                                products.
                                For entrepreneurs in the ‘Development’ phase, where improving profit margins
                                and productivity is critical, automation is the most important advantage [Figure 8].
                                At this point, business owners believe technology will help them strip out the
                                inefficiency of manual processes.




    Over the next two years, where will the majority of your future business
    investments be focused?

          Overall (N = 2,692)                         Europe (N = 1,371)              USA (N = 351)
                                                      APAC (N = 820)                  GCC (N = 57)


                                                                           0%        10%              20%                  30%                40%

                                                                                                                                        39%
Marketing

                                                                                                                                  36%
Sales and distribution

                                                                                                                                 35%
Customer experience (e.g. website)

                                                                                                                             34%
Product design

                                                                                                                      30%
Product manufacturing

                                                                                                                27%
Finance (e.g. accounting, payments)

                                                                                                          24%
Mobile communications


[ F I G U R E 7 ] BUSINESS INVESTMENTS OVER THE NEXT TWO YEARS
Source: 2019 BNP Paribas Global Entrepreneur Report




                                BNP    PA RI BA S        E N T RE PRE N E U R   RE PORT    /   2019   /   PART        II

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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




    What steps do you plan to take in the next five years to help you achieve those goals?


          Overall (N = 2,692)                              Creation (N = 460)                         Growth (N = 844)
          Development (N = 1,262)                          Consolidation (N = 90)                     Transfer (N = 36)

                                                                     0%               10%              20%                     30%

                                                                                                                                     35%
Marketing and brand development

                                                                                                                                     35%
Research and development

                                                                                                                           31%
Expansion of my business into (a) new sector(s)

                                                                                                                         29%
Recruit technically-skilled workforce

                                                                                                                     28%
Secure funding for the continued growth or expansion
of my business
                                                                                                                   26%
Find new business partners

                                                                                                             24%
Recruit senior professionals

                                                                                                         23%
Prepare the next generation of my family for their new
business responsibilities
                                                                                                        22%
Automation

                                                                                                      21%
Online distribution


[ F I G U R E 8 ] BUSINESS INVESTMENTS ACROSS THE LIFECYCLE
Source: 2019 BNP Paribas Global Entrepreneur Report




Securing credit to drive development
During the ‘Development’ phase, the primary goal is to improve business performance
by investing in changes that impact productivity and profit. At this point, many seek
support from a financial institution; in fact, ‘Development’ stage entrepreneurs are
more likely to take out credit to finance their businesses than those at any other
stage of the lifecycle.




                                BN P    PA RI BA S    E NTRE PRE N E U R    RE PORT   /   2019   /   PART     II

                                                                      32
In Asia, 55% of entrepreneurs have sought to borrow to invest in their own businesses
                                [Figure 9]. This rises to more than six in every ten business owners in China, India
                                and Indonesia. In the mind of the entrepreneur, the opportunities offered by these
                                solutions are clear and they are comfortable using credit to simultaneously achieve
                                                    personal objectives, including diversifying their investment
                                                    portfolios (45%) and fulfilling short-term funding requirements
In Asia, 55%                                        (41%).
of entrepreneurs have
                                                            In Europe, entrepreneurs rely on credit solutions to purchase a
sought to borrow                                            new asset (for example, real estate), which half of them have done
to invest in their own                                      at some point. However, many also depend on these solutions for
businesses.                                                 business financing, in particular in the Netherlands, the UK and
                                                            Switzerland.



    What has motivated you in the past to take out credit or lending products?


          Overall (N = 2,214)                         Europe (N = 1,171)                 USA (N = 267)
                                                      APAC (N = 665)                     GCC (N = 49)



                                                                           0%      10%               20%         30%         40%          50%

                                                                                                                                    48%
Purchasing a new asset (e.g. real estate)

                                                                                                                              44%
Requiring financial support for my business

                                                                                                                       37%
Diversifying my investment portfolio through
new financial products
                                                                                                                       36%
Personal requirement for short-term funding

                                                                                                                 33%
Mortgage to buy my primary property

                                                                                               19%
Purchase of a luxury item (e.g. yacht, jet, fine art)


[ F I G U R E 9 ] ENTREPRENEURIAL USE OF CREDIT SOLUTIONS
Source: 2019 BNP Paribas Global Entrepreneur Report




                                BNP    PA RI BA S       E N T RE PRE N E U R    RE PORT    /    2019       /   PART    II

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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




      4
  STAGE




CONSOLIDATION

Timing is everything
For almost 7% of entrepreneurs globally, the difficult decision on the horizon is
choosing when to exit their business. While they only form a small proportion of our
research audience today, all business owners will one day face the same question of
whether they want to continue leading the firm they’ve worked hard to build up. If
the answer is no, they need to know how to prepare for what comes next.
These considerations are front of mind for the Baby
Boomer generation, more than one in three of whom is
                                                                                  Their main concerns
intending to exit this year. Many are already going through
the process of either finalizing a sale or transferring                      are finding the right time
ownership, while others are hoping to step back within 12                    to sell and implementing
months. As a result, a quarter of the older generation are                               a strategy that
actively preparing the next generation to take the reins
from them.
                                                                                   will safeguard their
                                                                                      personal wealth.
Those planning their imminent departure are already
thinking about how to protect their financial interests after
they have left behind entrepreneurial life. Their main concerns are finding the right
time to sell and implementing a strategy that will safeguard their personal wealth
[Figure 10]. Timing is everything in business, but to end on a high, entrepreneurs
know they also need a robust plan in place.




                     BN P    PA RI BA S   E NTRE PRE N E U R   RE PORT   /   2019   /   PART   II

                                                        34
You mentioned that you are preparing for business exit this year.
    Which of the following activities will form part of your preparation?


                                                                          41%                                             31%

  Putting a plan in place                                                               Forming a precise understanding
  to protect my wealth                                                                  of the value of my company


                                                                          41%                                       20%
                                                                                        Refinancing my
  Identifying the right time
                                                                                        business to improve its
  to sell my business
                                                                                        financial performance

                                                                       39%                                         19%
                                                                                        Restructuring my
  Putting a plan in place
                                                                                        business to improve
  to safeguard my family’s future
                                                                                        its competitiveness


[ F I G U R E 1 0 ] PREPARING FOR EXIT
N = 107 / Source: 2019 BNP Paribas Global Entrepreneur Report




                                BNP     PA RI BA S     E N T RE PRE N E U R   RE PORT   /   2019   /   PART   II

                                                                       35
FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




      5
  STAGE




TRANSFER
Keeping it in the family
As entrepreneurs’ firms start to move into the ‘Consolidation’ and ‘Transfer’ phases
of the lifecycle, their minds will turn more often to whom ownership of their firm
should pass. Some will start to consider a solution that is close to home: ‘keeping it
in the family’ is an intuitive decision for those who want the best for their firms and
their staff yet are wary of selling to an external buyer that may adopt a diametrically
opposed strategy.
This approach is strongly endorsed by this year’s research audience, where just over
half (51%) say their eventual plan is to transfer ownership of their primary business
to a relative. In Europe, entrepreneurs in Russia, Poland, Italy, Germany and France
are most convinced that this is the right approach for their businesses.
Only 14% anticipate selling to a new owner, with a further third intending a
management buy-out.



                                                                     51%
There are distinct and highly pragmatic
motivations underlying the preference for
family involvement. Nearly half (45%) of high
net worth entrepreneurs believe their relatives                of entrepreneurs say
will safeguard the financial value of their firm.             their eventual plan is
Millennials are the most likely of the different          to transfer ownership of
generations to hold this view.                              their primary business
In some parts of Asia, there are often powerful                        to a relative.
emotions at play. For instance, in Hong Kong,
44% of those intending to pass on their business to a family member say they will do
it primarily because ‘it is their duty’. In Singapore, the main objective is to preserve
family values in future business activities.



                      BN P    PA RI BA S   E NTRE PRE N E U R   RE PORT   /   2019   /   PART   II

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FROM IDE ATION TO IP O – THE BUSINESS L IFECYCL E




Further up the wealth scale, the picture looks a little different. The most successful
entrepreneurs – worth more than USD25 million – plan to go down this path because
they believe their relatives are well-suited to the task of management. 51% are
convinced that the next generation of their family are the right people to lead the
firm on to new successes [Figure 11].
In reality, transferring ownership of the firm to a family member is not a silver
bullet. As business owners build their professional networks, more options open
up, causing their preferences to evolve. Almost two thirds (62%) of early-stage
entrepreneurs believe their families should take over their firms one day, yet only
slightly more than a third feel the same when they come to the point of transfer
[Figure 12]. By that point, most entrepreneurs have decided that either a buy-out by
the management team or a sale is a better route forward.




    You mentioned that you plan to transfer ownership of your primary business to a family
    member. What are the reasons for this?


            OVERALL (N = 1,362)                       USD10-25 mn (N = 131)
            USD5-10 mn (N = 192)                      USD25 mn and over (N = 65)

                                                                       0%          10%              20%             30%            40%

                                                                                                                                         45%
To safeguard the financial value

                                                                                                                                     44%
The next generation are the right people
to develop the business
                                                                                                                             38%
To preserve the core values of the business

                                                                                                                           36%
It is the most tax efficient way

                                                                                                                     33%
I believe it’s my duty

                                                                                                21%
I am not willing to sell my business


[ F I G U R E 1 1 ] MOTIVATIONS FOR BUSINESS TRANSFER TO A FAMILY MEMBER
Source: 2019 BNP Paribas Global Entrepreneur Report




                               BN P    PA RI BA S      E NTRE PRE N E U R     RE PORT    /   2019   /   PART   II

                                                                        38
62%
                of early-stage entrepreneurs
                believe their families should
                    take over their firms one
                   day, yet only slightly more
                   than a third feel the same
                when they come to the point
                                    of transfer.




    Thinking about the long-term future of your primary business, which of the following
    scenarii best reflects your intentions?

BUSINESS LIFECYCLE
            Ownership of my primary business will most likely pass to a family member (e.g. donation)
            Ownership of my primary business will most likely pass to the management team (e.g. buyout)
            Ownership of my primary business will most likely pass to a new owner (e.g. sales)


                                   62%


 51%                                                       50%
                                                                               48%

                                                                                                                                          41%
                                                                                     38%                37%                   37%
       35%                                                       36%
                                                                                                              34%
                                          29%                                                                          29%

                                                                                                                                    22%

              14%                                                      14%                  14%
                                                 9%

Overall                           Creation                Growth              Development              Consolidation         Transfer
(N = 2,683)                       (N = 460)               (N = 844)           (N = 1,262)              (N = 90)              (N = 27)


[ F I G U R E 1 2 ] BUSINESS TRANSFER INTENTIONS AT DIFFERENT STAGES
Source: 2019 BNP Paribas Global Entrepreneur Report




                               BNP     PA RI BA S     E N T RE PRE N E U R   RE PORT   /    2019   /    PART      II

                                                                        39
SECTION 2




    THE

SUCCESSION
 QUESTION
THE SUCCESSION QUESTION




MAKING WAY
FOR THE NEXT
 GENERATION


                                     47%
                                     of entrepreneurs
                                     are confident the next
                                     generation are ready right
                                     now to take on the mantle
                                     of leadership.




 BN P   PA RI BA S   E NTRE PRE N E U R   RE PORT   /   2019   /   PART   II

                                   42
BNP   PA RI BA S   E N T RE PRE N E U R   RE PORT   /   2019   /   PART   II

                                   43
THE SUCCESSION QUESTION




                                                                                 Only one in
Although they have spent years building their
                                                               three entrepreneurs believe
companies around their own leadership style and                  their identified successors
vision, most entrepreneurs know that it is vital one day          are fully ready to step up
that the reins are handed on to the next generation.
                                                                          to that challenge.
Their successors – whether a daughter or son, or
ambitious individual they have coached through their
career – will bring fresh ideas that ensure their businesses can adapt to emerging
challenges. The question in their minds is not just whom to entrust with that role,
but how to manage succession preparation so that it serves the interests of both the
business and its founder.
The end-game is starting to formulate in their own minds, but entrepreneurs have
serious misgivings about relinquishing control. In their most honest moments, they
understand that their business successors have a significant amount of learning
to do before they are ready for the responsibility of running a company, being a
good employer and delivering shareholder value. Right now, only one in three
entrepreneurs believe their identified successors are fully ready to step up to that
challenge, while a majority (53%) feel that more guidance and training is required
[Figure 13].
The uncertainty ahead is most pressing for entrepreneurs intending one day to
transfer ownership outside the family through a sale or buy-out. Only a fifth (21%)
feel the next leadership team is ready. Perhaps there are questions over whether the
individuals they want to run the show would successfully adapt to a new culture or
ownership structure.
It is slightly less daunting for those who intend one day for their close relatives
to be appointed to the Board – 47% of these entrepreneurs are confident the next
generation are ready right now to take on the mantle of leadership. However, that
still leaves many heads of family businesses all over the world grappling with their
worries about stepping back.




                     BN P   PA RI BA S   E NTRE PRE N E U R   RE PORT   /   2019   /   PART   II

                                                       44
How ready are the next generation of leaders in your primary business to take
   on management responsibilities?


           The next generation of leaders are fully prepared to take on business management
           The next generation of leaders need some more guidance and support before they are ready to take on business management
           The next generation of leaders need a lot more guidance and support before they are ready to take on business management
           As yet, there is no obvious successor(s) in my primary business

           Next generation requiring guidance and support



                                                                              5%
                                                                         8%

                                                                                            47%


                                                                               48%                        INTENTION TO TRANSFER
                                                                                                          OWNERSHIP TO A FAMILY MEMBER
                           13%
                                                                                                          (N = 1,362)
                                                                   40%
                 10%                                  34%

                                   53%




                                                                   20%
                                                                                            21%
                             43%

   OVERALL
(N = 2,683)                                                                   59%
                                                                                                               INTENTION TO TRANSFER
                                                            58%
                                                            13%                                                OWNERSHIP OUTSIDE THE FAMILY
                                                                                                               (N = 1,321)


                                                                                     46%




[ F I G U R E 1 3 ] CONFIDENCE IN THE NEXT GENERATION OF LEADERS TAKING CHARGE
Source: 2019 BNP Paribas Global Entrepreneur Report




                               BNP       PA RI BA S    E N T RE PRE N E U R   RE PORT   /    2019   /   PART   II

                                                                         45
THE SUCCESSION QUESTION




IN CONVERSATION WITH
MARTINE REYNAERS
                                                                           MARTINE REYNAERS
                                                                           Managing Director @Reynaers Group

                                                                           Established in 1965 and with its
                                                                           headquarters in Duffel, Belgium, the
                                                                           Reynaers Group is a global, family-
                                                                           owned company, active in more than
                                                                           70 countries worldwide

                                                                           www.reynaers.com




‘We are inspired by younger family members to make
a legacy and to safeguard the company spirit for
future generations.’
Martine Reynaers has been CEO of Reynaers Aluminium (the global leader in aluminium
solutions for the building sector) since 1986. At the beginning of 2018, Forster Profilsysteme
joined the group, extending the activities to steel solutions for the building industry. The
company is headquartered in Belgium, has an annual turnover of around 500 million Euros
and employs 2,200 people.

Reynaers Aluminium has been through several distinct stages in its growth story to attain
the success it enjoys today. Ms. Reynaers says: ‘I’ve been managing the company for more
than 30 years and have overseen its development alongside the Board, the shareholders, the




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                                                          46
employees – and thanks to our customers. Earlier, we were very focussed on Belgium and the
Netherlands; then, we bought a company in Ireland that was operating in another industry and
was international. From there, we started developing the company into Germany and France.
We were fortunate to be one of the first active players in our sector in Eastern Europe, going
into Ukraine and Russia, and from there to Asia, the Middle East and US.’

She credits the consistent focus on product innovation as critical to the firm’s expansion into
overseas markets. ‘We didn’t feel that sending out Belgians worldwide would be the right
approach. Instead, we always tried to work with local people as much as possible, which meant
building strong in-country teams and adjusting to local market expectations of design, security
and safety, as well as competitive pricing on logistics, quality and pricing.’

Commenting on her personal path to join the family business, Ms. Reynaers says: ‘I am second
generation but sadly my father died very young, so I was never able to work with him. By the
time I joined the company, we already had an outside management team and of course I learned
a lot from them. Today, we maintain that mix of family and external Directors on our Board.
I also continue to be active in many associations: it is so important to learn from other CEOs.’

She believes that the firm’s focus on innovation has laid a strong foundation for the future. ‘By
definition, the future is not certain, so you cannot ‘future-proof’ a business. However, you can
do everything possible to improve agility in the face of unexpected situations. We invest in our
buildings, our equipment and our software. Innovation is very important because we sell our
products at a premium price, so we need to continue to grow customer value. We have an R&D
department and collaborate with universities, engineering consultancies and software houses
to stay ahead of market trends.’

She sees the next generation as vital to bringing forward new ideas: younger family members
are already actively involved in the governance structure of the firm.

Ms. Reynaers continues: ‘It has been great to see them so interested in the business. We have
joined a family business network, an active association that allows them to network and learn
from other ‘Next Gen’ peers. We are inspired by younger family members to make a legacy and
to safeguard the company spirit for future generations.’

Her advice to the next generation of leaders in the firm? ‘It is very important to communicate
and to be able to listen carefully, to be humble. Be collaborative when developing a clear
strategic decision. At the same time, avoid becoming immobile. If there are indications that
you are heading in the wrong direction, take the time to listen to that advice and then make
the decision to go left, or right.’




BNP   PA RI BA S   E N T RE PRE N E U R   RE PORT   /   2019   /   PART   II

                                   47
THE SUCCESSION QUESTION




A BLENDED
APPROACH
TO LEADERSHIP
 PREPARATION


                                    44%
                                    say that it is very important that
                                    the next generation participates
                                    in a succession plan devised
                                    by a wealth manager.




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                                  48
BNP   PA RI BA S   E N T RE PRE N E U R   RE PORT   /   2019   /   PART   II

                                   49
THE SUCCESSION QUESTION




                                                                                 In entrepreneurs’
                                                                        minds, the best leadership
Ensuring a smooth business succession between different                  preparation is less likely
generations is critical to preserving the hard-earned
gains made by those in the past. Today’s business owners
                                                                          to be found in textbooks
understand that they must play a proactive role now in                          than in hard graft.
preparing the future executive team for the pressures they
will face.
In entrepreneurs’ minds, the best leadership preparation is less likely to be found
in textbooks than in hard graft. They strongly believe that hands-on experience of
working for the business provides the most effective training [Figure 14].
In fact, practical experience is viewed as more important than offering prescriptive
guidance on how to manage company finances, handle client relationships or
negotiate with suppliers. Entrepreneurs from countries as diverse as Brazil, the US,
Belgium and China agree that the next generation must first immerse themselves in
the culture of the firm before they can be considered ready to lead.
At the same time, most do feel it is important to balance learned experiences with
formal guidance. For example, 44% say that it is very important that the next
generation participates in a succession plan devised by a wealth manager. This
rises to a majority (61%) of those running businesses in China, where management
buy-outs are the preference. As they start to seriously consider succession, they
realize that a structured approach to leadership preparation would ensure all bases
are covered.




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                                                       50
How important are each of the following in preparing the next generation for business transfer?

                                                                        Very important                   Important                 Not important
PRACTICAL EXPERIENCE
OF HOW THE BUSINESS OPERATES

                       79%                          76%                      76%
                                                                                                          71%
                                                                                                                                        66%
 54%
       42%                    18%                         22%
                                                                                                                                                33%
               4%                      3%                                           27%       2%                  24%      6%
                                                                 1%                                                                                      1%

Overall (N = 1,769)   Luxembourg (N = 34)      Belgium (N = 72)             Brazil (N = 51)              Russia (N = 34)              China (N = 218)


GUIDANCE ON FINANCIAL
MANAGEMENT



                       68%                          65%                      61%                          59%                           58%
 48%   46%
                                                                                    38%                           35%                           39%
               6%                      6%                 31%                                                              6%
                              26%                                4%                           1%                                                         3%

Overall (N = 1,769)   Luxembourg (N = 34)      Brazil (N = 51)              China (N = 218)              Russia (N = 34)              India (N = 66)


EDUCATION ON BUSINESS SUCCESSION
FROM PROFESSIONAL ADVISORS



                       59%                          59%                      59%                          58%                           56%
       49%
 43%                                                                                39%                           39%
                              36%                         36%                                                                                   35%
               8%                      5%                        5%                                                                                      9%
                                                                                              2%                           3%

Overall (N = 1,769)   India (N = 66)           Poland (N = 39)              Brazil (N = 51)              Belgium (N = 72)             Russia (N = 34)


PARTICIPATION IN A SUCCESSION PLAN
PUT TOGETHER BY MY WEALTH MANAGER



                       61%                          57%                      56%                          56%                           56%
 44%   48%
                                                                                    39%                                                         43%
                              36%                                10%                                              35%
               8%                                         33%                                 5%                           9%
                                       3%                                                                                                                1%

Overall (N = 1,769)   China (N = 218)          Brazil (N = 51)              India (N = 66)               Luxembourg (N = 34)          Netherlands (N = 70)

                                        [ F I G U R E 1 4 ] ENTREPRENEURS PREPARE THE NEXT GENERATION FOR THEIR RESPONSIBILITIES
                                                                                                           Source: 2019 BNP Paribas Global Entrepreneur Report




                               BNP     PA RI BA S    E N T RE PRE N E U R   RE PORT       /   2019   /   PART    II

                                                                       51
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